Business owners and management teams that are contemplating a sale of their company are now evaluating the impact that the ‘timing of sale’ has on the net proceeds received, as a result of the upcoming 33% capital gains tax increase. Many business owners have seen a decline in revenue and profit over the last several years and are expecting an improvement in the future. Since most business valuations are derived, largely in part, by the earnings the company generates, the general consensus is that a higher value will be obtained by delaying the sale. Achieving the highest business valuation is often the sole concern with little consideration to the net after tax dollars. Many business owners are now re-evaluating this thought process given the significant capital gains tax increase that will take place on January 1, 2011.The Jobs and Growth Tax Relief Reconciliation Act of 2003 was signed into law on May 28, 2003. Among other things, this 2003 tax law created lower dividend and capital gains rates for all investors. Under this Act, the maximum net capital gains tax for assets held for more than one year was lowered from 20% to 15% (and from 10% to 5% for taxpayers in the 10% or 15% tax bracket). The Tax Increase Prevention and Reconciliation Act of 2005, which extended the 15% capital gains tax rate, “sunsets” on January 1, 2011. The term sunset is a time phase-in provision which means that without further Congressional action, the previous law, including the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), will go back into effect. Therefore, the top 15% capital gains rate will revert to its former pre-May 6, 2003 level of 20%, effectively a 33% increase.This tax increase should be one of many factors that are considered when evaluating the optimal time table for a business sale. For those owners or management teams that do not plan to sell for 5-10 years this event should not become an inducement to rush out and sell the company. For those owners that are considering a sale over the next few years, the impact that this tax increase has on the after tax dollars received in a sale could be very significant and therefore, a thorough evaluation should be performed by the owner to assess the actual effect between selling a business now or years in the future. By analyzing the net after tax proceeds from a business sale in years 2010 through 2013, the business owner or management team will recognize that even with a 10-15% growth per year, and maintaining consistent earnings with a constant exit multiple, the incremental value attributed by the growth in income and revenue, in most cases, would be completely negated by the increase in capital gains taxes. Therefore, while the value of the business is anticipated to be higher in years 2011 and beyond, the net after tax proceeds, could be considerably less.There are many considerations involved in the sale of a privately held business and this article is written with the intention of helping business owners understand the potential impact that the 2011 capital gains increase will have on the sale of their privately held business. Understanding the effect of the impending capital gains tax increase enables business owners to make informed decisions as it relates to maximizing the net after tax dollars through the intelligent structuring and timing of the business sale transaction. The tax implications will vary for every business based upon the type of assets being sold and the structure of the transaction and it is strongly recommended that a business tax advisor be involved in the process.